Bank levy lite

Where were we? In June, the Chancellor announced a levy on banks’ balance sheets “to ensure our banks make a fair contribution to reflect the risks they pose.” The move was lazily headlined as a “£2,5bn bank levy”. In fact, it takes four years to reach that level. After a little bank lobbying about “unsustainable” levels of taxation we learn that HM Treasury may cut the tax rate on UK and international banks, to ensure the Chancellor’s £2.5bn “target” is not breached. Meanwhile, HMRC has apparently reduced Vodafone’s potential tax liability of about £7bn to a little over £1bn.

These could be invaluable sources of funding for a Green Investment Bank. £200bn is needed in the next decade to renew the UK’s energy and transport infrastructure. If, as DECC Minister Greg Barker said last week, “The GIB is about crowding in private sector investment into a viable green economy,” then the Treasury is letting go of potentially key funding streams for economic recovery.

At the time the levy was announced in June, a TUC round-up of anaylsts’ assessments reveals that banks could be better off as a result of tax changes announced in the Budget. The levy was announced as being set at the low rate of 0.04% initially, rising to 0.07%, so that the levy on balance sheets would not reach £2.5 billion until 2013/14.

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

Bank levy (from January 2011

0

1,150

2,320

2,500

2,400

Corporation tax cut

10

400

1,200

2,100

2,700

The cut in corporation tax from 28% to 24% by 2014 was expected to negate the impact of the levy on bank profitability. A number of bank analysts calculated that some banks could benefit from Osborne’s measures. Deutsche Bank analysts commented at the time that the budget was a “good outcome for banks” shortly after it was announced. Other analysts went further. John-Paul Crutchleyt at UBS, expected Lloyds and HSBC to benefit by 2012 because the cut in their corporation tax bill was larger than their hit sustained through the bank levy. Meanwhile, banks are looking to distribute £7bn in bonuses this year.

Written by Philip Pearson

Philip is a former Senior Policy Officer in the TUC’s Economic & Social Affairs Department, working on issues around climate change, energy and transport.